The U.S. District Court for the Eastern District of Virginia looks like the O.K. Corral in the aftermath of the recent paper showdown requesting dismissal of FERC's petition to request an Order Affirming the Commission's Order Assessing Civil Penalties of $34.5M against defendants Powhatan Energy Fund and Alan Chen.On October 19, Powhatan and Heep Fund, et. al. (Chen defendents) filed Motions to Dismiss FERC's request prior to trial.The Powhatan Motion to Dismiss relies on FERC's failure to provide fair notice that the trades at issue were illegal at the time they took place. Powhatan says this raises serious due process issues.The Heep Fund Motion to Dismiss relies on a contention that the statute of limitations had expired before FERC's filing in U.S. District Court for all but 4 days of the subject trading. Heep Fund also says that the complaint does not state a claim for market manipulation. They also claim the same due process issues raised in Powhatan's Motion. And, finally, Heep contends that the FPA does not authorize manipulation claims against individuals like Dr. Chen.FERC responded on October 30, claiming Fair Notice precedent supports their claim and that Powhatan mischaracterizes the Commission's actions and precedent, and that none of their claims have merit. FERC's response to Heep Fund made similar claims that their Motion to Dismiss was all wet.What I found interesting here was FERC's reading of its Black Oak precedent as recognizing that traders may make trades solely to capture MLSA payments, however FERC "fixed" that problem by requiring traders to also purchase transmission.

In March 2009, PJM followed the narrower approach, proposing to pay MLSA to all trades with paid transmission (physical or virtual). In response to that filing, no party suggested that UTC trading would be susceptible to the kind of perverse incentives that the Commission understood could apply to most virtual trades. No party filed any comments rebutting this contention as to the narrow distribution method, and the Commission accepted it in September 2009. Black Oak Energy, LLC, et al. v. PJM Interconnection, L.L.C., 128 FERC ¶ 61,262 (2009).

So, the Commission believed it had closed any loophole that created an incentive to place trades with the intention of collecting MLSA payments by requiring traders to purchase transmission. But it didn't. And the trading happened.FERC contends, nevertheless, that the trading was an illegal type of trading, and in an effort to build a villain it uses the word "Enron" 19 times. Everybody knows that Enron was bad, right? And because this whole issue is so technical and hard to think about, maybe people will just go with the bad aura created by glittering generalities? Here's another: FERC used the words "Death Star" 17 times. No average Joe knows what "Death Star" trading is, but it conjures up images of our Star Wars heroes being in jeopardy. And it sounds really, really bad!!FERC also prattles on about the Powhatan & Chen defendant's trading depriving other market participants of MLSA payments they would have scored if the defendants didn't trade. But in this alternate universe where the defendants didn't trade, might others have traded instead, which would throw off any entitlement to MLSA payments by the other market participants? And FERC has still failed to convince me that the MLSA payments would have flowed through to the electric rates paid by customers of the other market participants, instead of into the corporate coffers that pay share dividends. Since FERC can't explain this properly, it must not be true that the other participants failure to receive MLSA payments caused higher rates for electric consumers. I'm still waiting here...Yesterday, Powhatan and Heep filed Rebuttals to FERC's responses.Powhatan pointed out that FERC has changed its position on what the Black Oak orders meant, and "misses the forest for the trees." Powhatan also points out a gap in FERC's logic: If the Black Oak orders prohibited the trading at issue, why did FERC find it necessary to change the tariff to prevent this kind of trading AFTER it discovered what the defendants had done. By closing the barn door after the horse got out, the Commission can now only retroactively fine Powhatan for trading that wasn't illegal when it happened. And, of course, that idea is preposterous.The Heep Rebuttal also refuted FERC's contentions in its Response.So, now we'll see if the rocket docket blasts off towards the Death Star, or dismisses this case, once the smoke clears in the corral.

If MLSA payments consist of the excess payments collected, and if these excess payments are doled out to all eligible participants based on their trades, then how were only a handful of other market participants "cheated" out of their share of these payments, and why are all these "cheated" market participants investor owned utilities, and why is one of them Dominion, and why did FERC file in the Eastern District of Virginia; and what if all the jurors are Dominion customers, and what if... you are entering the Twilight Zone....

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About the Author

Keryn Newman blogs here at StopPATH WV about energy issues, transmission policy, misguided regulation, our greedy energy companies and their corporate spin.In 2008, AEP & Allegheny Energy's PATH joint venture used their transmission line routing etch-a-sketch to draw a 765kV line across the street from her house. Oooops! And the rest is history.

AboutStopPATH Blog

StopPATH Blog began as a forum for information and opinion about the PATH transmission project. The PATH project was abandoned in 2012, however, this blog was not.

StopPATH Blog continues to bring you energy policy news and opinion from a consumer's point of view. If it's sometimes snarky and oftentimes irreverent, just remember that the truth isn't pretty. People come here because they want the truth, instead of the usual dreadful lies this industry continues to tell itself. If you keep reading, I'll keep writing.